Progressing into efficient social security
Our work on social security and insurance was presented during the T3M networking event. Pandemic in general is a terribly bad event, but it is kind of amazing how so many researchers around the world came up with ingenious methods to maintain communication and exchange of ideas despite lockdowns and restrictions on travel. We were very lucky to hear three great papers and hear some super useful feedback on our work as well.
We show that labor tax progression can effectively substitute for the insurance implicit in redistributive social security. The existing view in the literature is that linking pensions to individual incomes wages reduces distortions associated with social security, but removes insurance. The net outcome of efficiency gain and insurance loss was found to be negative in an economy with idiosyncratic income shocks. Our study shows that privatizing social security can deliver aggregate welfare gains if alternative channels of providing insurance are implemented.